FX Commentary – Euro Continues Rally To 12-week High.

Market Talk

  • The euro held on to big gains on Friday after rising to as high as 1.1362, 12-week high against the dollar on Thursday after the European Central Bank’s bold stimulus measures stoked hopes the Eurozone could emerge from the Covid-19 recession quicker than many had expected.
  • The European Central Bank expanded its stimulus more than expected to prop up an economy dealing with its worst recession since World War Two. The ECB increased its emergency bond purchase scheme by 600 billion euros, more than 500 billion expected by markets, to 1.35 trillion and extended the scheme to mid-2021.
  • Unwinding bets on safe-haven currencies reflected broad optimism in financial markets as unwinding of lockdown restrictions supported an economic recovery hopes. The safe yen traded at 109.11 yen, off two-month low against the US dollar. Australian dollar, often seen as a risk proxy in the currency market, stood at $0.6947, having hit a five-month high of $0.6987 on Thursday.
  • Gold’s safe-haven edge re-emerged on Thursday after  Labour Department reported that an additional 1.9 million Americans filed for first-time unemployment claims last week, bringing to nearly 43 million the number rendered jobless since the pandemic hit home in March, showing that economic fallout from Covid-19 would take time to recover.
  • Official U.S. employment data due later on Friday night is expected to show nonfarm payrolls fell by 8 million in May after a record 20.537 million plunge in April. The unemployment rate is forecast to rocket to 19.8%, a post-World War Two record, from 14.7% in April.

Chart Focus EUR/AUD
Key Points

1. Sell EUR/AUD recommendation
2. Sell EUR/AUD at 1.6295. Stop at 1.6350 and target at 1.6100.
3. Aussie dollars is like to gain from an increase risk appetite while the Euro dollar looks exhausted after an 8-day rally.
4. Price is capped by a resistance point and with momentum indicators hinting of more price declines ahead, is a sign of a downtrend.

Fundamental Comments
1. Aussie dollar is likely to gain as a result of economic reopening and bigger risk appetite from investors.
2. Euro dollar rally looks exhausted after 8 consecutive days of rally.

Technical Comments
1. Price is capped by a previous resistance as well as the 20EMA resistance point
2. Both MACD and Stochastic are looking likely to turn down from a high point, hinting of more price declines ahead.

Key Levels

Support 1.62251.61851.6135
Resistance 1.62751.63201.6370

Technical Overview

USDCNH – Since the peak at 7.1961 on 27 May, price has declined to a low of 7.0848. Price moved into the resistance zone and 55EMA resistance point at 7.1333 yesterday. This resistance point had capped the advance and a decline to 7.0730 is likely within the next 24 hours. Stochastic is moving down from oversold zone. MACD is bearish and turning down as well.

Support 7.08507.07307.0525
Resistance 7.09907.12207.1335

EUR/USD – The rally for this pair continues into an eight session and to a high of 1.1379, just before the European market opening. The trend is strong as the gradient of the 20EMA is steep. MACD has also moved higher than the divergence warning high. Stochastic is in the overbought zone for a long period of time. The next resistance comes in at 1.1428. We are bullish for the higher target but remain cautious.

Support 1.13601.13251.1270
Resistance 1.14001.14551.1490

GBP/USD – Price only reached a low of 1.2500 overnight, missing our order at 1.2485. Price rallied overnight to a high of 1.2632 but MACD is warning with a divergence. We are likely to see a pullback and consolidation before the rally resumes again. Stochastic is still rising and it may take a while before the pullback begins.  We would prefer to stay aside for now and wait for better trading idea.

Support 1.25801.25351.2480
Resistance 1.26351.26601.2715

XAU/USD – Price broke below $1726, which invalidated our 5-movement structure. Price reached a low of $1689.21 and we have seen a recovery in price to $1721.40, which was higher than our expectation of $1715. MACD is bearish and is turning down. Stochastic is rising from the oversold zone. Our view remains unchanged and we are looking at another decline to $1688 in the next couple of days

Support 1700.751689.101674.40
Resistance 1712.201721.251731.50

USD/JPY – Price broke above 109.20, which is the Fibonacci 261.8% of the rally from 107.07 to 107.89. Price looks strong and likely to continuing moving higher. However MACD is starting to warn with divergence. We could be approaching a price high. Stochastic is also in the overbought extreme for a while now. The next resistance lies at 110.20. The trend is bullish but we remain cautious for the moment.

Support 109.20108.85108.40
Resistance 109.65109.95110.20

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